China’s ‘sticky floor’

Economic success in China will hinge on fixing the gender inequality among its workers.

May 2009

China’s transformation to a market-oriented economy has been accompanied by a significant increase in the pay gap between men and women. In many industrialized economies, gender-based differences are most pronounced in white-collar jobs, creating a “glass ceiling” for women who work in the office. But as China industrializes, gender pay differences are most striking among blue-collar workers. In this video interview, economists Li Bo and Chi Wei from China’s Tsinghua University consider whether China’s female factory workers labor on a “sticky floor.” The professors are the recent recipients of the first McKinsey Economics Award issued by the McKinsey China Council of Business Economists. Janamitra Devan of the McKinsey Global Institute conducted the interview in February 2009.

Watch the video, or read the transcript below.

Video

China’s ‘sticky floor’

Economic success in China will hinge on fixing the gender inequality among its workers.

Gender inequality in China

Chi Wei: China has experienced a steady worsening of what’s sometimes called the “sticky floor” phenomenon. By sticky floor, we refer to the wage gap between female workers and their male counterparts in jobs that require relatively few skills and little education.

In the West, there’s a rich history of research into questions of gender discrimination in the workplace. But for developing nations, there isn’t much evidence. There seems to be some similarities between China and European nations such as Hungary and former Soviet republics. As in China, the income gap between genders in those nations has widened since their transition to a market economy.

Li Bo: We decided to study gender differences in China because we felt it to be a significant problem that hadn’t been fully recognized. China’s labor market has undergone dramatic change in recent years. In the centrally planned era, everyone tended to earn similar wages, regardless of ability or differences in educational background. Now we see education can lead to big salary differences. That’s what you’d expect in a market economy. But we’ve also discovered that, as firms have greater freedom to establish salary standards, their compensation policies tend to discriminate against female workers.

China’s enormous pool of surplus rural labor contributes heavily to gender discrimination among low-skill workers. For employers in China, the pool of inexpensive labor seems almost limitless. Companies can afford to be very picky about whom they hire and what they pay.

In developed countries, discrimination tends to be more of an issue for high-end job holders, the so-called glass-ceiling phenomenon. In China, discrimination is more prevalent among low-end job holders.

We expect the economic crisis and recent government initiatives to intensify the sticky-floor effect in China. The global economic slowdown has led to widespread factory closures in the Yangtze River and Pearl River Delta regions. This is unwelcome news for immigrant workers, especially women. I fear we’ll see some wage reduction and employment-opportunity reduction for women workers. At the same time, the government’s 4 trillion yuan economic stimulus package will mostly go to fund big infrastructure projects. Those projects will generate a lot of new construction jobs, which are dominated by men. Both factors, we think, could aggravate the gender gap, at least for a while.

Conditions on the factory floor

Chi Wei: When we began our research, we didn’t expect to find the sticky-floor problem to be so pronounced in China. In factories driving China’s export boom, the workers are overwhelmingly female. Many of them begin working in the factories as young as age 16 or 17. They tend to work for seven to eight years. Most of their income is used to support their families. These girls work incredibly hard, and their income doesn’t necessarily reflect the value of their contribution. Male workers who do the same job tend to earn more money. These girls are the real engine of China’s GDP growth. But they are also the victim of unfair treatment, such as wage discrimination.

Usually wages are their sole source of income. They aren’t entitled to social security or retirement benefits. They are almost all girls, they come from small villages. They have few skills and often not more than a junior middle-school education. Typically, the work they do doesn’t require much physical strength. Still, it’s very hard work, usually requiring ten hours or more each day on the assembly line. After seven or eight years of work, many of these women save a bit of money for their families and set aside a dowry for themselves.

Most women go back to the countryside to marry and establish their own families at the age of 24 or 25. So they have only seven to eight years to work in the cities, which means that they don’t establish a permanent career track. Mostly, they just do some simple and repetitive work in the factory, which offers limited opportunity for promotion. Of course, these women earn more money in factories than if they had simply remained in the fields. You would say that is a gain. But we should not confuse the two different things. Compared with her counterparts of different gender, she faces far fewer prospects for long-term employment than a young man [does].

Avenues for improvement

Chi Wei: Our view is the one-child policy has been helpful in easing the gender gap for high-skill, better-educated workers. Before the policy was implemented, urban families typically bore more than one child. In many cases, families concentrated their resources on educating sons and neglected investing in their daughters. But when families are restricted to a single child, they shower attention and resources—in terms of education and career development—on that child, regardless of gender. The policy has also helped change traditional attitudes about girls. If your only child is a girl, you want her to be a success. That’s why we believe the one-child policy helps to reduce [the] gender pay gap in the cities. But in rural areas, where families are still allowed to have a second child if their firstborn is a girl, the story is quite different.

Li Bo: We believe the situation will improve. One important reason is China’s one-child policy. The rigorous enforcement of that policy has the effect of reducing the labor supply. As China’s baby boomers age, the demographic dividend will disappear. The supply of low-end labors will decrease. In the first half of last year, even before the economic crisis started, we began to see signs of shortage of immigrant labor in some of the coastal areas.

The increasing acceptance of rule by law and stronger law enforcement could help as well. Discrimination exists because relevant laws are not strictly enforced. With continued economic development and improved law enforcement, I believe, things are going to get better.

Chi Wei: Employers shouldn’t see maintaining gender equality as a cost. We believe fair treatment of both genders in the process of recruitment and compensation management brings many benefits to firms. Many studies indicate that a single-gendered workforce is less productive than a workforce with a balanced gender ratio. Equality in the workplace contributes to employee morale and can help create a sense of passion to one’s job.

We believe it’s more effective to teach gender equality in primary and middle schools than universities. That’s because college girls have to pass a very challenging entrance examination before they can enter any college. So if a girl can make it to college, she’s already usually very independent and competent enough to pursue career success, [much] like boys. But at the primary-school and middle-school level, we hope compulsory education can change the tradition in the countryside, where women are regarded as inferior to men.

Li Bo: It’s important to distinguish between legislation and enforcement. On a legislation level, we already have labor laws. They have been revised and updated. I think it is safe to say that legislators in China have clearly endorsed the principle of equal pay for equal work. The big problem is enforcement.

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